SHLDQ - Sears Holdings Corp

[krazeenyc]

 

Thank you for sharing! I very much enjoy your posts and fully agree that SHLD could be one of his mistakes, especially considering the timeframe and Berkowitz's potential CAGR on it ("premature accumulation"). However, I think it's too early to come to this conclusion. As long as Berkowitz is still fully invested – and adding to his position – I don't find it convincing to argue with the stock price development. This is a little too much EMH for my taste, especially for this kind of investment, where the stock is supposed to multiply if Berkowitz is proven right.

 

I know that he has been talking a lot about the real estate but there is also the "Mini-Berkshire" aspect of his thesis and also the chance of the transformation succeeding – the "grand slam home run" scenario as Berkowitz calls it.

 

Finally, I don't think that we have any proof that he was wrong about his RE appraisals – actually RE sales until know have confirmed that there is tremendous value in the SHLD RE portfolio.

 

Just for the record, I am not saying SHLD's NAV is $40 because that is where the stock is trading today (not an EMH person by any means). But I also don't think NAV is anywhere close to $150 like Berkowitz says, which is the high end of Baker Street's NAV estimate.

 

Can SHLD turn out to be a successful investment for him? I guess it depends on how you define a success. Let's assume for a moment that SHLD's NAV is $150 today and will grow 3%/year for the next 10 years, at which time the company will be completely liquidated (NAV around $200 at that time). If his current cost basis is $65 or thereabouts (~$85 less ~$20 of spin-offs/dividends so far), he'll get a triple over 20 years (weighted-average holding period is maybe closer to 15 years, so I'll use that).  Even ignoring his 1% annual management fee, that will not come close to the return of the S&P 500 index. And that is a hugely bullish scenario. I guess very little is impossible, but I don't think the jury is still out as to whether SHLD can be a winner for him (I'll loosely quantify a "winner" as a 13% CAGR or better -- 2%/year above the S&P 500's long-term average plus his 1% management fee). 

 

Lastly, all of that assumes the most valuable asset (the RE) is completely liquidated at a full and fair price. If Sears still has a retail presence, which I think is obvious given Eddie's repeated comments, then the RE value matters far less (even if only a few hundred stores are open by then, they'll be the most valuable ones). The market is not going to value the top mall locations based on RE values if they are being used for retailing operations (plenty of retailers and restaurants own their stores, but the stocks are valued based on cash flow, not appraised land value).

 

 

I don't think you should assume that the RE is going to be liquidated. But I assume that Sears (eventually) will not be using the lions share of their real estate on their own retail operations.  In fact, I assume a REIT spinoff -- which will allow the market to value the REIT like they do other REITs.  Look at Janss Marketplace -- the 160,000 sq ft store.  It's going to be cut up into 4 appx 40,000 sq ft stores. 1 Sears, 1 Nordstrom Rack, 1 DSW, and 1 unnamed tenant (not yet signed). They're likely getting about $25-$30 NNN there.  Look at the Ravenswood location in Chicago. It was a crappy Sears Auto Center. Now it's modern 130,000 sq ft building where they're getting $32.50 NNN and their Sears Auto is renovated and paying $0 NNN.  They put up the land, the developer put up some cash as well as taking all the construction risk -- there is a mortgage on the property now and at the end  of they day they end up with 45% of the development.  Additionally there is a 150 Unit Rental Apartments on the same property as well -- that was developed with another developer under a similar structure. Look I know it seems crazy -- but as they accelerate store closings on the one hand and sign deals with retailers on the other hand the percentage of space that is leased will grow quickly.

 

FWIW Eddie Lampert is a CEO of a major retailer with many supplier partners as well as 200k + employees. If his number one priority was to extract value out of the real estate -- it's an answer he could never make public. I do think that with 400-500 sears and 400-500 kmarts at an average Sq ft of 40,000-50,000 sq ft the retail operations while much smaller in total sales can be profitable. SYW in my eyes is a means of unlocking real estate value -- by transforming the company away from the traditional store network -- and separating the retail from the real estate.

[ni-co]

 

Thank you for sharing! I very much enjoy your posts and fully agree that SHLD could be one of his mistakes, especially considering the timeframe and Berkowitz's potential CAGR on it ("premature accumulation"). However, I think it's too early to come to this conclusion. As long as Berkowitz is still fully invested – and adding to his position – I don't find it convincing to argue with the stock price development. This is a little too much EMH for my taste, especially for this kind of investment, where the stock is supposed to multiply if Berkowitz is proven right.

 

I know that he has been talking a lot about the real estate but there is also the "Mini-Berkshire" aspect of his thesis and also the chance of the transformation succeeding – the "grand slam home run" scenario as Berkowitz calls it.

 

Finally, I don't think that we have any proof that he was wrong about his RE appraisals – actually RE sales until know have confirmed that there is tremendous value in the SHLD RE portfolio.

 

Just for the record, I am not saying SHLD's NAV is $40 because that is where the stock is trading today (not an EMH person by any means). But I also don't think NAV is anywhere close to $150 like Berkowitz says, which is the high end of Baker Street's NAV estimate.

 

Can SHLD turn out to be a successful investment for him? I guess it depends on how you define a success. Let's assume for a moment that SHLD's NAV is $150 today and will grow 3%/year for the next 10 years, at which time the company will be completely liquidated (NAV around $200 at that time). If his current cost basis is $65 or thereabouts (~$85 less ~$20 of spin-offs/dividends so far), he'll get a triple over 20 years (weighted-average holding period is maybe closer to 15 years, so I'll use that).  Even ignoring his 1% annual management fee, that will not come close to the return of the S&P 500 index. And that is a hugely bullish scenario. I guess very little is impossible, but I don't think the jury is still out as to whether SHLD can be a winner for him (I'll loosely quantify a "winner" as a 13% CAGR or better -- 2%/year above the S&P 500's long-term average plus his 1% management fee). 

 

Lastly, all of that assumes the most valuable asset (the RE) is completely liquidated at a full and fair price. If Sears still has a retail presence, which I think is obvious given Eddie's repeated comments, then the RE value matters far less (even if only a few hundred stores are open by then, they'll be the most valuable ones). The market is not going to value the top mall locations based on RE values if they are being used for retailing operations (plenty of retailers and restaurants own their stores, but the stocks are valued based on cash flow, not appraised land value).

 

Completely agree with your analysis. I think we only differ on one point: I don't know about Berkowitz but to me, liquidating SHLD by selling all the real estate is the worst case scenario. If I make sub S&P 500 returns for 5 years in this case, that's no problem, as long as I don't loose all too much. And I assume that's also Berkowitz's line of reasoning.

 

I don't know the average price Berkowitz has paid so far but at current prices, Lampert has plenty of room (= negative cash flow) for trying to bring this beast into profitability, either by transformation or by turning it into an investment vehicle – several years, actually – even if you assume NAV at "only" $100 per share. This is my margin of safety. And if Lampert succeeds SHLD could produce up to one third of its current market cap in earnings with their current revenue base. I think this is plenty of upside.

 

What amazes me is that this risk/reward perspective is so rarely taken by considering a SHLD investment.

[peridotcapital]

I don't think you should assume that the RE is going to be liquidated. But I assume that Sears (eventually) will not be using the lions share of their real estate on their own retail operations.  In fact, I assume a REIT spinoff -- which will allow the market to value the REIT like they do other REITs.  Look at Janss Marketplace -- the 160,000 sq ft store.  It's going to be cut up into 4 appx 40,000 sq ft stores. 1 Sears, 1 Nordstrom Rack, 1 DSW, and 1 unnamed tenant (not yet signed). They're likely getting about $25-$30 NNN there.  Look at the Ravenswood location in Chicago. It was a crappy Sears Auto Center. Now it's modern 130,000 sq ft building where they're getting $32.50 NNN and their Sears Auto is renovated and paying $0 NNN.  They put up the land, the developer put up some cash as well as taking all the construction risk -- there is a mortgage on the property now and at the end  of they day they end up with 45% of the development.  Additionally there is a 150 Unit Rental Apartments on the same property as well -- that was developed with another developer under a similar structure. Look I know it seems crazy -- but as they accelerate store closings on the one hand and sign deals with retailers on the other hand the percentage of space that is leased will grow quickly.

 

FWIW Eddie Lampert is a CEO of a major retailer with many supplier partners as well as 200k + employees. If his number one priority was to extract value out of the real estate -- it's an answer he could never make public. I do think that with 400-500 sears and 400-500 kmarts at an average Sq ft of 40,000-50,000 sq ft the retail operations while much smaller in total sales can be profitable. SYW in my eyes is a means of unlocking real estate value -- by transforming the company away from the traditional store network -- and separating the retail from the real estate.

 

You're right, I should have used a less literal term than "liquidated" (the inside of the Sears and Kmart stores will be liquidated, the buildings will be used based on what interest there is from third parties, which might not be outright sales). I don't doubt that the leasing arm of the business will eventually be quite substantial, and that would clearly play a big role in attaining a Berkowitz-like NAV. In fact, in my personal valuation of SHLD, I assign a % of the total owned RE into 3 buckets; retail operating, sold outright, and third party tenant leases.

[ni-co]

Only to add one thing: You are right if you imply that you have to trust Lampert in doing the right thing (not squandering the RE proceeds) to make an investment (or trust Berkowitz in trusting Lampert for that matter…). All the RE is of no help if Lampert keeps pursuing his dreams of integrated retail when his strategy has failed. However, I don't think that Lampert is irrational. If his strategy doesn't work at some point he will stop the bleeding.

[adesigar]

Here's the second blog post,  following up the Sears post from earlier this week:

 

http://www.peridotcapital.com/2014/05/even-great-investors-like-bruce-berkowitz-make-mistakes.html

 

Sure they make mistakes. Even Buffett makes mistakes. Nothing new there.

 

But a few details you might have missed about the companies you mentioned in your article.

 

1. St Joe. - The price of the stock is partly affected by Einhorn and other copycat shorts. But its still nowhere near the $7-12 they claim. This is basically a tug of war between Berkowitz and the shorts. One more thing about this is Berkowitz (If I remember it correctly) has said his time frame on St. Joe is not in terms of Years but more like decades.

 

2. Pfizer - He bought Pfizer and it dropped in price because of Obamacare fears nothing to do with the valuation. Since then Pfizer has gone up to $29 and has been paying 4% in dividends. Berkowitz sold and moved onto Financials because they were a better value and he didn't like the frequent one time charges. Sometimes you sell a stock which has dropped to buy another which has dropped even more. Its all about relative value.

[peridotcapital]

Only to add one thing: You are right if you imply that you have to trust Lampert in doing the right thing (not squandering the RE proceeds) to make an investment (or trust Berkowitz in trusting Lampert for that matter…). All the RE is of no help if Lampert keeps pursuing his dreams of integrated retail when his strategy has failed. However, I don't think that Lampert is irrational. If his strategy doesn't work at some point he will stop the bleeding.

 

Sure, he'll stop the bleeding eventually, but the value destruction is enormous. At the annual meeting he said he went against his retail advisers and kept hundreds of money-losing Kmart and Sears stores open post-merger to give them a chance to make money. Fine, but how much time would you have guessed that Eddie Lampert would give them? You never would have dreamed he would give them 8 years! Maybe 3 years max? Does the fact that he is now pulling the plug on them give us confidence? Many are saying today that SYW won't work. Will he invest in SYW for 8 more years? How many billions will have been wasted on a cumulative basis between money-losing stores and SYW investments if integrated retail doesn't work either? It's scary to think about, especially in the context of SHLD's current $4B equity value...

 

[ni-co]

Sure, he'll stop the bleeding eventually, but the value destruction is enormous.

 

I don't agree. Do you imply that SHLD would have "kept" its value if Lampert had acted differently? Mid range retail giants like SHLD have failed around the world within the last few years. In Germany, for example, there are only two broadly positioned warehouse chains left and they both are in deep financial trouble. The internet happened, H&M, Zara etc. happened – you can't turn this clock back.

 

Fine, but how much time would you have guessed that Eddie Lampert would give them? You never would have dreamed he would give them 8 years! Maybe 3 years max? Does the fact that he is now pulling the plug on them give us confidence? Many are saying today that SYW won't work. Will he invest in SYW for 8 more years? How many billions will have been wasted on a cumulative basis between money-losing stores and SYW investments if integrated retail doesn't work either? It's scary to think about, especially in the context of SHLD's current $4B equity value...

 

How many years has he stayed invested in Autonation? Out of my head I remember he said somewhat around 12 years. Lampert is really patient. I don't follow SHLD since 2005 but I guess that it took him this long just to come to this point had a lot to do with the financial crisis, especially the real estate crisis. Yes, 8 years is not what I have in mind, but I invested when Lampert took over as CEO. So I'm in the second year. I actually find it quite comforting that Lampert is in year 9 and I'm in year 2; CAGR-wise this transition is much more urgent for him than for me.

 

I'm willing to give him at least five years, unless he does something obviously stupid and it shows in the numbers. And spending the cash on SYW and pension obligations is nothing I consider to be "obviously stupid". But if he succeeds and SHLD trades at $200 in five years I'll make 38% annualized, seems to me worth it.

 

Edit:

With regard to the $4bn in equity: Greenblatt would say: "What I see, is leverage."

[heth247]

If I were in Eddie Lampert's shoes and really wanted to keep running the retail operation, I would consider overhauling some of the merchandise and brands in Sears.

Sears doesn't sell a lot of unique merchandise. Consumers do price-comparison these days for products and the SKUs that Sears stocks are probably also available on Amazon. People also have no incentive to go into the store if they know what the product looks like already and they can just buy it online, unless they happen to be at the mall and the price difference is small.

 

Given that they have a lot of real estate, I would consider partnering up with online merchants trying to establish a physical presence.

Partnering with the likes of Warby Parker, some of the bigger sellers on Etsy, modcloth, etc. by providing them a way to display or sell their products in Sears stores gives those sellers another distribution channel, and for Sears it gives them more foot traffic, especially if they get exclusivity with some of these online merchants and/or they switch out the merchandise every few weeks. (ala Zara)

 

Sears can price the items slightly higher, (consumers might be willing to pay a bit higher up to the shipping cost if they order online) or allow consumers to get membership points on their Sears rewards for these purchases which will encourage them to shop for other items on Sears that they might otherwise buy from Amazon. These merchants can also most likely give Sears a cut without raising the price, given the overhead of shipping for free samples. (ie. Warby Parker)

 

My opinion is that in retail, some of the more critical factors are price, convenience, and selection/merchandise. It's hard to out-convenience Amazon. Outpricing them is also hard. (Bezos: your margin is my opportunity)

That leaves merchandise, and some of these online stores don't need to list on Amazon, but do want a physical location, giving Sears an advantage there.

 

In Eddie's video, he emphasized that the transformation is from a company that sells products to a service company that takes care of people's life (as well selling product). Whether he will succeed or not is yet to see, but it seems to me that he definitely understand that the retail business alone is a dog's fight that won't give you good return.

 

Here is another example. IBM was well known for selling hardware before, but once they realized that it is so hard to make a profit by competing with companies like Dell, they made their transition to a software/service company, which turned out to be immensely successful.

 

 

[ni-co]

In Eddie's video, he emphasized that the transformation is from a company that sells products to a service company that takes care of people's life (as well selling product). Whether he will succeed or not is yet to see, but it seems to me that he definitely understand that the retail business alone is a dog's fight that won't give you good return.

 

Here is another example. IBM was well known for selling hardware before, but once they realized that it is so hard to make a profit by competing with companies like Dell, they made their transition to a software/service company, which turned out to be immensely successful.

 

That's a nice way of looking at it. Especially if you think of SYW as a platform for other retailers. It's like Amazon's platform with the additional benefit of providing direct customer contact in 2000 stores (or however many will be left). It's also about their insurance and guarantee business and potential revenue streams from licensing the brands.

[peridotcapital]

Sure, he'll stop the bleeding eventually, but the value destruction is enormous.

 

I don't agree. Do you imply that SHLD would have "kept" its value if Lampert had acted differently? Mid range retail giants like SHLD have failed around the world within the last few years. In Germany, for example, there are only two broadly positioned warehouse chains left and they both are in deep financial trouble. The internet happened, H&M, Zara etc. happened – you can't turn this clock back.

 

 

If he would have closed those stores when people were telling him to it would have probably saved at least $1 billion (he stated at the annual meeting that cumulative losses for all closed stores during the last 12 months of operation was $200 million). If that money was used for something with a knowable positive return (debt reduction, for instance), shareholders would have been far, far better off. Even if he used the money to make an acquisition (he dropped out of the Restoration Hardware bidding but that was one time a deal could have happened) the odds are good it would not have been a total loss.

[constructive]

I don't agree. Do you imply that SHLD would have "kept" its value if Lampert had acted differently? Mid range retail giants like SHLD have failed around the world within the last few years. In Germany, for example, there are only two broadly positioned warehouse chains left and they both are in deep financial trouble. The internet happened, H&M, Zara etc. happened – you can't turn this clock back.

 

Walmart, Target, Kohl's, Home Depot, and most other competitors and retailers are still quite profitable. Sears is far from being mediocre as you imply. Their operational performance since ESL became chairman is terrible compared to their peer group.

[bobp]

Does it not bother anyone that they do a pre-recorded conference call and will not take questions? I'd like to hear Lampert answer questions. So he's the biggest shareholder, he should still answer to the rest of his shareholders. To me it's a "screw you" attitude.

[BTShine]

Does it not bother anyone that they do a pre-recorded conference call and will not take questions? I'd like to hear Lampert answer questions. So he's the biggest shareholder, he should still answer to the rest of his shareholders. To me it's a "screw you" attitude.

 

Do you hold the same view of Warren Buffett and Berkshire Hathaway? 

[bizaro86]

Does it not bother anyone that they do a pre-recorded conference call and will not take questions? I'd like to hear Lampert answer questions. So he's the biggest shareholder, he should still answer to the rest of his shareholders. To me it's a "screw you" attitude.

 

Do you hold the same view of Warren Buffett and Berkshire Hathaway?

 

Hard to argue that Lampert's record at SHLD has earned the same level of investor trust that BRK has earned over decades, imo.

[heth247]

I don't agree. Do you imply that SHLD would have "kept" its value if Lampert had acted differently? Mid range retail giants like SHLD have failed around the world within the last few years. In Germany, for example, there are only two broadly positioned warehouse chains left and they both are in deep financial trouble. The internet happened, H&M, Zara etc. happened – you can't turn this clock back.

 

Walmart, Target, Kohl's, Home Depot, and most other competitors and retailers are still quite profitable. Sears is far from being mediocre as you imply. Their operational performance since ESL became chairman is terrible compared to their peer group.

 

You are just describing the "symptom". SHLD produced stable cash flow from 2005 to  2011 (even for the crisis year of 2009). I believe if they wanted, they could have chosen to be profitable after 2011 but they did not choose to because they realized that the old strategy (whether it is renovating your stores heavily or fast adjusting your merchandise selection/pricing) is just to compete for a pie that is shrinking in both size and profit margin no matter what.  This is like the time when IBM-PC was the name for PC desktops, but when DELL, Acer appeared, would IBM be better off spend lots of R&D and money to defend their brand? No matter what they do, less and less people were willing to pay a premium for IBM/HP PC.  The same thing applies to the appliances and tools (KCD product line). Yes, SHLD is the major player, but intense competition will inevitably eat into your margin and market share no matter what.  It will not be the best investment of your money trying to defend it relentlessly.

 

I am glad that Eddie has chosen to take a very different approach to solve the problem than his peers and is willing to take the plunge to undergo a fundamental business model change, and consequently present us a golden chance to buy into SHLD at these price levels with RE as the downside protection.

 

Yes it is painful in terms of operational numbers. But looking at it in a different way, we are already 4 years into the transformation, which means 4 years ahead of any other retailers that in the future will have to undergo their own transformation to survive. 

 

 

 

 

[Kraven]

Does anyone know if Lampert is going to release SSFMS* numbers tomorrow?  I am hoping he provides that level of transparency.  I think we've earned it.

 

 

* Same Store Fake Mustache Sales

[Guest ajc]

Does anyone know if Lampert is going to release SSFMS* numbers tomorrow?  I am hoping he provides that level of transparency.  I think we've earned it.

 

 

* Same Store Fake Mustache Sales

 

 

According to someone at Investor Relations, a complete breakdown of all SSFMS numbers will be made available in pdf format on the Seritache website after the close of trading tomorrow.

 

 

 

[tombgrt]

This thread is starting to get ridiculous. Look up the posts from a few years ago. The same things were being said back then. Almost every detail is scrutinized and labeled as a positive sign*.

 

Many intelligent board members were attracted by the assets and track record of Lampert and were lured in by their own hopes of witnessing 'the second coming of Buffett'. Sadly the big turnaround/plan/catalyst hasn't occured yet and most of those board members went on their way, looking for other businesses that required less hope. It's human nature, people like stories. David vs Goliath is one of our favorites and sometimes it's hard to resist.

 

Buffett saw his mistake in buying Berkshire but I'm not sure Lampert ever saw his. He has bet heavily and will most likely try until he's left with an empty shell if he has to. No way back now!

 

 

 

*This post will be seen as another incredible bullish sign. The sentiment is extremely bearish and every analyst has a sell rating attached to this POS. Jaj! Great news right? Sadly, being contrarian doesn't automatically mean you are right, no matter how much fun it is to go against the crowd. Let's give Mr Market at least some respect and stay critical.

 

 

[alertmeipp]

This thread is starting to get ridiculous. Look up the posts from a few years ago. The same things were being said back then. Almost every detail is scrutinized and labeled as a positive sign*.

 

Many intelligent board members were attracted by the assets and track record of Lampert and were lured in by their own hopes of witnessing 'the second coming of Buffett'. Sadly the big turnaround/plan/catalyst hasn't occured yet and most of those board members went on their way, looking for other businesses that required less hope. It's human nature, people like stories. David vs Goliath is one of our favorites and sometimes it's hard to resist.

 

Buffett saw his mistake in buying Berkshire but I'm not sure Lampert ever saw his. He has bet heavily and will most likely try until he's left with an empty shell if he has to. No way back now!

 

 

 

*This post will be seen as another incredible bullish sign. The sentiment is extremely bearish and every analyst has a sell rating attached to this POS. Jaj! Great news right? Sadly, being contrarian doesn't automatically mean you are right, no matter how much fun it is to go against the crowd. Let's give Mr Market at least some respect and stay critical.

 

Similar posts like above were probably posted years ago. LOL.

[20ppy]

Folks should just ignore this and next few quarters' numbers, otherwise, most people are not able to hold on to the wild ride. Following a process is better than trusting oneself too much...

[FCharlie]

This is the first time I've seen SHLD forecast this far out on pension funding....

 

From the 10Q filed this morning:

 

Domestic Pension Plan Funding

 

In our Annual Report on Form 10-K for the fiscal year ended February 1, 2014, we disclosed that we expected our contributions to our domestic pension plans to be approximately $487 million in 2014 and $310 million in 2015. We now expect contributions to our domestic pension plans to be approximately $485 million in 2014, $310 million in 2015, $270 million in 2016, $250 million in 2017, $215 million in 2018 and $75 million in 2019. The ultimate amount of pension contributions and timing could be affected by changes in the applicable regulations as well as financial market and investment performance.

[merkhet]

I haven't had a chance to go through the 10-Q yet, but here's what I'm currently focused on at the moment:

 

Domestic same store sales are down 1.0% in 1Q 2014 (down 2.2% at Kmart and up 0.2% at Sears) versus down 3.6% in 1Q 2013 (down 4.6% at Kmart and down 2.4% at Sears).

 

Additionally, cash flow from operations is down to (560) in 2014 versus (713) in 2013 -- mostly due to the differential in changes in working capital.

 

So same store sales seem to be improving (when's the last time Sears domestic comped up?) while cash burn is decreasing. I'm sure there's apocalyptic news in here somewhere, but I haven't seen it yet. (And to be fair, I'm not done reading the 10-Q.)

[Luke 532]

 

Domestic same store sales are down 1.0% in 1Q 2014 (down 2.2% at Kmart and up 0.2% at Sears) versus down 3.6% in 1Q 2013 (down 4.6% at Kmart and down 2.4% at Sears).

 

Slide 13 shows increase in appliances and home, with a decrease in electronics, lawn & garden, and sporting goods.  Makes me think of this excerpt of a recent conversation between heth247 and peridotcapital...

One thing I want to point out/argue is that, I think the loyal customer base Eddie is trying to retain and entice will be centered around the KCD customers. And this group of customer is not consists of "older people". It will always remains young and middle aged. It is also likely that this group of people brings the most stable profit for Sears. 

 

Think about it, Amazon was originally a book store and then expanded its customer base to such a scale now. I think Eddie's strategy is the same, first try to retain the core customer base by building a relationship with them, and then try to expand it from there through the SYW social media platform. That's also explains why he used the "How great would it be if you could see what appliances your friends have" example.

 

That said, if we start to see hardlines sales flatten out and inch higher, while softlines and food/drug decline, that would be a great signal for the strategy you outlined.

[krazeenyc]

 

Domestic same store sales are down 1.0% in 1Q 2014 (down 2.2% at Kmart and up 0.2% at Sears) versus down 3.6% in 1Q 2013 (down 4.6% at Kmart and down 2.4% at Sears).

 

Slide 13 shows increase in appliances and home, with a decrease in electronics, lawn & garden, and sporting goods.  Makes me think of this excerpt of a recent conversation between heth247 and peridotcapital...

One thing I want to point out/argue is that, I think the loyal customer base Eddie is trying to retain and entice will be centered around the KCD customers. And this group of customer is not consists of "older people". It will always remains young and middle aged. It is also likely that this group of people brings the most stable profit for Sears. 

 

Think about it, Amazon was originally a book store and then expanded its customer base to such a scale now. I think Eddie's strategy is the same, first try to retain the core customer base by building a relationship with them, and then try to expand it from there through the SYW social media platform. That's also explains why he used the "How great would it be if you could see what appliances your friends have" example.

 

That said, if we start to see hardlines sales flatten out and inch higher, while softlines and food/drug decline, that would be a great signal for the strategy you outlined.

 

Sales trends are bad. I don't think you can really extrapolate any kind of green shoots from 1 quarter.

We know they want to decrease low margin sales.  That's good since they will have much smaller stores and will need to concentrate on higher margin products.

 

FYI they got $40M for ending their lease early at Columbiana Centre.

 

Also interesting to note that with electricity costs up 10% utility bills can be up $30-50M possibly for the year? So does that mean utility costs for 2000 stores is $300-500M appx?

 

Looks like a sizable chunk of capex is going into the redevelopment of these mall properties to lease/sublease to other retailers.

[Luke 532]

Lampert never used the word 'acquisition' or 'acquire' on the Q4 2013 call, but mentioned this today.

 

"These initiatives, when coupled with executing on the profitability framework I just described, will position us to play offense, enable us to continue to seek opportunities to grow, and invest in our business through acquisitions and other strategic relationships.

 

As I indicated earlier, as changes occur in and around retail, we intend to be in the mix focused on investments and acquisitions that accelerate and improve our transformation. Again, we are focused on making a profit, and we expect to continue to focus on our strengths, including increased focused on our best members, best stores, and best categories."

 

Probably nothing, but it's interesting that the following link mentions Sears possibly buying Michaels.  The article is dated April 2014 so I'm not sure why 2006 is mentioned (perhaps a typo).

 

http://www.wwltv.com/news/Michaels-confirms-breach-of-as-many-as-26M-cards-255760281.html

MOUNT PROSPECT, IL - MARCH 22: A Michaels store logo is seen on a shopping-cart child's seat March 22, 2006 in Mount Prospect, Illinois. Reports state that arts and crafts retail giant, Michaels, is up for sale and Hoffman Estates, Illinois-based Sears Holding Corp. reportedly may be interested in buying them. Michaels has almost 900 stores located in 48 states and Canada. (Photo by Tim Boyle/Getty Images)